Do you know how to reduce CAC costs?
CAC - Customer Acquisition Cost - is just one of the performance indicators that companies analyze in monthly reports. This figure is used, in particular, to determine whether the marketing team's efforts have been effective in winning over new customers.
But what to do with this information?
Knowing what CAC is and how to calculate this KPI is the start. Next, marketers need to know how to read this figure and determine actions to reduce spending. In other words, more than knowing the theoretical aspect, they need to know how to act on it.
That's why, in this article, we're going to briefly explain what CAC is, how it's calculated and explain what you need to know in order to reduce your company's costs.
What is CAC?
The CAC - Customer Acquisition Cost - is the amount a company spends to acquire another customer. This total value represents the investments in marketing and sales over a given period of time, including expenses such as labor, software and paid media.
How to calculate CAC?
In simple terms, this is the formula for calculating CAC:
CAC = Number of New Customers Acquired / Total Marketing and Sales Cost
What will determine the accuracy of the CAC is the thorough consideration of all the costs associated with acquiring a new customer. In other words, the more accurate the Total Marketing and Sales Cost calculation, the more accurate your CAC will be.
To calculate the Total Cost of Marketing and Sales, it is important to include all costs related to customer acquisition.
Yes, all of them!
To help you understand how to do this, let's use the example of the costs of a single ad on Instagram. Imagine that a stationery store is advertising back-to-school supplies.
1. Calculating labor
Start with the manpower. In the production of the ad, the content producer, the designer and a traffic manager are involved. Each of them receives a gross salary of R$5,000.
The content product took an hour to execute the demand, the designer spent three hours and the traffic manager did the set up in an hour. The hourly cost of each professional is R$31.25. Therefore, the labor cost for this production was R$156.25.
2. Include technological resources
The next step is to include the costs of the technological resources used, i.e. any paid-for software . In this case, the designer needs resources such as image banks and editors, so we add another R$500 to the bill.
3. Separate investment values
Finally, when we talk about paid advertisements, there is an associated investment, so add the costs of paid media. In the example, the company has set aside R$750 as a budget for this ad.
4. Doing the math
The ad ran and the results were excellent! 75 customers made a purchase related to the back-to-school promotion. The CAC is therefore calculated as follows:
CAC = 75 / 156.25 + 500 + 750
CAC = 75 / 1406.25
CAC = 18.75
In other words, the cost of acquiring each new customer was R$18.75.
What can be done to reduce CAC?
Reducing CAC is a task that requires a strategy for each situation. In this article we'll look at three scenarios in which a marketing professional must know how to act to reverse negative CAC results.
Total cost of marketing and sales rising
The Total Cost of Marketing and Sales is the factor you can control.
Therefore, when managing the marketing and sales teams' budgets, separate out which expenses are essential, such as labor, and which can be reduced with adjustments.
Cutting
Start by removing everything that is not used constantly from the payment list. For example, what software is contracted but not used in the production of demands?
Change
Next, analyze what can be exchanged for a more cost-effective solution, for example swapping one image database for another, or one video editing software for another. This helps to maintain the quality of internal deliveries, but at a lower cost.
Resize
Finally, spending on acquisition channels can be higher than necessary.
To correct this problem, get those responsible for traffic to review campaign budgets, the ROI of each one and direct the amounts to the channels with the best results.
Reduced number of new customers acquired
When the number of new customers acquired is low, there are problems with the company's acquisition channels. At this point it is necessary to separate the channels of B2C and B2B companies.
B2C companies
B2C companies generally use social networks more as acquisition channels. When the number of new customers is low, ads can be a problem. So start by reviewing the content of the campaigns, the set-up and the investments in each one.
If this is part of your company's marketing strategy, review your investments in e-mail marketing, print ads, billboards, television and radio commercials.
Can you tell which channels have brought in the most customers? Which ones have brought in fewer? With this information in hand, dedicate more resources and focus on the channels that help you attract customers.
B2B companies
B2B companies can also use social networks, so the same considerations as above apply.
But at events, fairs and congresses, it's possible to meet several potential customers in one place. Therefore, B2B companies invest heavily in events where they can have direct contact with the decision-makers who are going to buy their products and services.
However, events are expensive. When evaluating which ones will be the most strategic, think about which ones you can exhibit at, get in touch with potential clients and which ones it is more advantageous to attend as a participant.
And this should be the focal point in B2B acquisition channels: where can the sales team build the most relationships? Where is it most likely to get a contact to present a proposal? Give these channels more space.
Reduced volume of recurring purchases
The value of the CAC will not always amount to a few tens of reais. For some companies, especially those with a higher average ticket , the CAC can be considerable.
And in that case, what should we do?
For these companies, recurring purchases are the best way out. In other words, after winning over the customer, they need to keep buying the product or service, in a way that "pays off" for the amount invested in the purchase.
For example, if the CAC is approximately R$ 2000, and the monthly subscription to the service costs R$ 400, the customer needs to buy for five months to return the investment in attraction. And only in the sixth month will they generate a profit for the company.
Therefore, taking the time to structure an effective Customer Success department, creating loyalty programs and offering personalized conditions for purchase are all ways to encourage repeat purchases.
Conclusion
CAC is a vital metric for any company that wants to grow sustainably. After reading this article, you now know how to monitor CAC and make informed decisions about marketing and sales investments.
By implementing these strategies to reduce CAC, companies can improve their profitability, build stronger customer relationships and drive long-term growth.
Want to learn more about the most important growth parameters for a business? Every week, here on the Pareto blog, you'll find new articles on digital marketing and tips for boosting your sales. Follow along!
